How to Dissolve a Corporation in South Dakota

Find out how to go about dissolving a corporation in South Dakota.

For some corporations, a time comes when the people who own and run
things voluntarily decide to close the business. If you’ve reached that
point with your South Dakota corporation, you’ll need to take care of
multiple tasks—including what is called dissolving and winding up your business.

Dissolving the Corporation

Your
corporation is registered with the State of South Dakota. Officially
ending its existence as a state-registered business entity, and putting
it beyond the reach of creditors and other claimants, begins with a
formal process called “dissolution.” While a corporation may be
involuntarily dissolved through a court decree, or for administrative
reasons such as failing to file an annual report or pay fees or
penalties, this article covers voluntary dissolution by a corporation’s
shareholders. Also, while there are streamlined procedures for
dissolving corporations that have not yet issued stock or not yet
started doing business, those procedures are not covered in this
article.

South Dakota’s Business Corporation Act (“BCA”) provides
for voluntary dissolution through a shareholder vote at a shareholder
meeting. Before the vote, your board of directors must submit a proposal
to dissolve to the shareholders. Keep in mind that you are required to
give notice to each shareholder, whether or not entitled to vote, of the
proposed meeting on dissolution. Then, unless your articles of
incorporation or the board of directors require a greater vote, a
greater number of shares to be present at the meeting, or a vote by
voting groups, a majority of the votes entitled to be cast on the
proposal must approve the dissolution. If you use this method you should
make sure to properly record both the board’s proposal and the
shareholders’ votes.

The BCA also allows you to avoid a
shareholder vote at a formal meeting if all shareholders entitled to
vote on dissolution provide their written consent. This method can be
more efficient for small businesses where most or all of the
shareholders are directors—and there is full agreement on dissolution.
All shareholders entitled to vote must sign a document, known simply as a
“consent,” that states the corporation is dissolved. The consent then
must be properly entered in the corporation records. If you use this
method, you must give any nonvoting shareholders at least ten days
advance notice that the corporation will dissolve.

Certain Matters are Unchanged by Dissolution

Note that dissolution, alone, does not:

transfer title to the corporation’s property

prevent
transfer of corporation shares (although the authorization to dissolve
may provide for closing the corporation’s share transfer records)

subject the corporation’s directors and officers to standards of conduct different from those that applied before dissolution

change
quorum or voting requirements for the corporation’s board of directors
or shareholders, change provisions for the selection, resignation, or
removal of directors or officers or both, or change provisions for
amending the corporation’s bylaws

prevent the commencement of a legal proceeding by or against the corporation

abate or a suspend a legal proceeding pending by or against the corporation on the effective date of dissolution; or

terminate the authority of the corporation’s registered agent.

Articles of Dissolution

After
dissolving your corporation, you should file articles of dissolution
with the Secretary of State (“SOS”). The BCA does not strictly require
you to file this document, instead stating that a corporation “may” file
the articles. However, for various reasons, including limiting
liability and terminating various filing requirements, filing articles
of dissolution is generally the best practice. (If you have specific
questions about whether to file, you should contact a local attorney.)

To complete the articles of dissolution, you must provide:

the name of your corporation

the date dissolution was authorized; and

if
dissolution was approved by the shareholders, a statement that the
proposal to dissolve was duly approved by the shareholders in the manner
required by the BCA and by your corporation's articles of
incorporation.

There is a $10 fee to file the articles. An
articles of dissolution form is available for download from the SOS
website. Your filing usually will be processed in two days. One-day
processing is also available.

Be aware that your business name will become available for use by others after dissolution.

“Winding Up”

Following
dissolution, your corporation continues to exist only for the purpose
of taking care of certain final matters that, collectively, are known as
“winding up” the company. It may be appropriate to designate one or
more officers and/or directors to handle the winding up.

Under the BCA, key winding up tasks include:

collecting the corporation's assets

disposing of corporation properties that will not be distributed in kind to shareholders

discharging or making provision for discharging the corporation’s liabilities; and

distributing remaining corporation property among shareholders according to their interests.

Regarding
the last two listed items, be aware that your corporation’s first
obligation is to discharge liabilities. This includes paying all
business taxes and creditors. Only then may the corporation distribute
remaining assets to shareholders.

Notice to Creditors and Other Claimants

One
other key task is giving notice to creditors and other claimants of
your corporation’s dissolution. Giving notice is optional. However,
doing so will help limit your liability and also allow you to more
safely make final distributions to shareholders.

Under the BCA,
one way to give notice is by sending a written document directly to
known claimants after dissolution. Proper written notice must:

describe information that must be included in a claim

provide a mailing address where a claim may be sent

state
the deadline, which may not be fewer than 120 days from the effective
date of the written notice, by which the dissolved corporation must
receive the claim; and

state that the claim will be barred if not received by the deadline.

You
also may give notice to other (unknown) claimants by publishing in a
newspaper. As with sending direct notice to known claimants, there are
specific rules for giving notice through publication. Generally
speaking, claimants have three years after the date of newspaper
publication to bring a claim.

Some of the rules for giving notice
and responding to claims can be hard to understand. Therefore, if you
choose to give claimants notice, you should strongly consider getting
assistance from a business attorney.

S Corporations

An
S corporation is a corporation that has filed an election with the IRS
to have business income, losses, deductions, and credits pass through to
individual shareholders for federal tax purposes. Only the
shareholders, and not the corporation, pay federal taxes on income from
the business. Potential tax issues aside, the process for dissolving and
winding up an S corporation is generally the same as dissolving and
winding up a traditional corporation.

Tax Clearance

South Dakota does not require that you obtain tax clearance before dissolving your corporation.

Out-of-State Registrations

Is
your corporation registered or qualified to do business in other
states? If so, you must file separate forms to terminate your right to
conduct business in those states. Depending on the states involved, the
form might be called a termination of registration, certificate of
termination of existence, application of withdrawal, or certificate of
surrender of right to transact business. Failure to file the additional
termination forms means you’ll continue to be liable for annual report
fees and minimum business taxes.

Additional Information

You can find additional information, such as forms, mailing addresses, and filing fees, on the SOS website.

Final Note: Dissolving
and winding up your corporation is only one piece of the process of
closing your business. For further, general guidance on many of the
other steps involved, check Nolo’s 20-point checklist for closing a business and the Nolo article on what you need to know about closing a business.